After a combined 27 years at AFKLM- Martinair, which is now in the throws of deciding what to do with its maindeck business, Jan Krems may be counting his blessings that he made leap across the ‘pond’ from the Franco-Dutch carrier to the recently merged American giant.

But aside from the potentially shrinking proportions of his former carrier, it was a very logical move for both Krems and United. With the top cargo job at United rather unexpectantly vacated by Robbie Anderson who had been in the job since 2010, Krems had the opportunity to apply years of experience to help craft the new United Cargo offspring that is emerging from the combined cargo units of the former United Airlines and Continental Airlines.

From United’s perspective it’s surely all good. Krems with 27 years of experience in a number of leadership positions spanning Europe, Africa, Middle East, Asia and most recently as VP for Americas at AF-KLM-Martinair, brings in-depth global experience and certainly equally important, his invaluable experience as the ‘lead integrator’ of the cargo businesses of Air France and KLM-Martinair when they merged nearly a decade ago.

On his change of job, Krems notes that it’s still too early to make a clear distinction between the two companies’ cultures, separated physically by the vast Atlantic and culturally one would assume, by an equally great chasm.

“My initial observation is that there are many more similarities than differences,” Krems says, revealing assumption to be misconception. “One thing I’ve noticed about both organisations: Leadership throughout the enterprise is very enthusiastic about the potential for substantial growth in cargo and very confident that cargo can be an even stronger contributor to the airline’s success.”

But differences do exist of course and one that Krems identifies is United Cargo’s focus on measuring key performance indicators and a large variety of other metrics. “This concentration on measuring as much as possible, is different from my experience with European carriers,” he explains.

Comparisons aside, it is the here and now that is important for Krems and United Cargo and what made an immediate impression on him, he says, was the “confident attitude and enthusiasm of the members of the United Cargo team.”

“Another thing that impressed me was the ‘business sense’ of the team. They know the strategies it will take to improve our business and they have a strong drive to deploy these actions and see them through to completion,” he adds.

A key reason for his decision to join United was what he says is his believe in the “untapped potential” of United’s cargo business, “that it was a ‘volcano’ that could erupt in a very positive way if the focus was placed where it belonged and the right actions were taken. So I was very pleased to hear that everyone on the team shares that belief. The team also made it clear that they’re willing to do whatever it takes to make this success happen.”

Fusion in action

Indeed this will not happen without a substantial amount of work, seeing as how the merger of the two US carriers was only inked about four years ago – this kind of fusion into one whole is very complex and takes a great deal of time and effort and if there is one person who knows that well, its Krems.

“The process of bringing two companies together to form a new one is a gradual process and a very interesting dynamic. In my new role at United, I have already applied some of the experiences I had when we brought the KLM and Air France cargo processes, technologies and cultures together 10 years ago,” he says.

Chief among the challenges is the human factor, the process of forging a unified company culture. “You can train people on a new system and they can learn proficiency in a different set of processes. But aligning people from two organisations into a single culture – ideally, one that combines the best elements from each of the merging companies – is something that must be worked out day-by-day.”

It’s really up to management to create the right atmosphere for people to be happy and motivated in their work, Krems says, and it’s up to co-workers to be willing to embrace change and build up their levels of mutual trust. The merged company employees may start out thinking of ‘us’ and ‘them’ he says, but a really successful merger occurs when the people begin to embrace the ‘we’ attitude, he says.

Down to business

So what is at the top of Krems’ agenda? “The immediate focus of our business is to execute our base product at the highest levels of reliability and efficiency. We’re confident the market will continue to react positively to these efforts. Ensuring our customers’ confidence is our base product is our number one priority.”

With this as a cornerstone of its cargo business, United sees broad growth potential in TempControl, EXP express and its other added-value products.

“Combining a base of trustworthy operations with a suite of services customers want is the way we will create customer preference. And establishing customer preference on our value-added products is the best way to improve the yield mix and establish a consistently profitable business.”

Indeed, that linchpin of profitability – yield – has proven so elusive to nearly the entire industry for such a protracted time. Krems repeats what has become a depressing mantra for the industry: “Yields are still under pressure due to overcapacity in most markets.”

But he adds that United Cargo is encouraged by the “consistent” volume it is experiencing. Customers are responding to the refinement and development of the new technology system which United introduced last year and also to the steady improvement in operational performance as confirmed by the carrier’s C2K-based shipment metrics. “We are seeing limited yield gains in some regions and markets, but overall the yield situation is still a difficult one.”

“The rise in demand is becoming more consistent, and now we see the underlying economic factors turning positive. However, we’re not popping any champagne or dancing in the streets. There are a number of ingredients in the mix that weren’t there the last time the worldwide economy expanded.”

These include the ever-present modal threat from ocean shipping which has become a sharper competitor because “they have improved their product and their data quality and they have shortened their transport times.” And it includes the long-running overcapacity issue which has taken on a new dimension thanks to passenger growth-driven influx of modern widebody aircraft which have substantial belly capacity.

“It will take a strong and sustained period of demand growth and a much stronger commitment to capacity discipline, to fix the supply-demand imbalance that emerged during the last negative cycle,” Krems notes.

This of course brings up an interesting topic, having the first 27 years of his career substantially rooted in the maindeckbased cargo business. “I feel strongly that there will be always a role for all-cargo airlines. It is also clear the business is changing. It appears inevitable that the percentage of cargo on passenger aircraft will continue to grow in comparison to the amount on freighters. Passenger demand is growing much faster than cargo demand, and the new generation of passenger widebodies carry higher payloads with greater fuel efficiency.”

But as confident as he is of the industry need for the maindeck animal, he adds one caveat: “Their prosperity is contingent on responding
quicker to changing demand. In the environment of recent years – increasing belly capacity and sluggish demand growth – it no longer made sense to operate on many traditional routes. Even as the economy recovers, the number of routes that can support profitable freighter operations will be limited.”

Market view

Looking towards the end of this year, where in the ‘old’ days the entire industry would be looking forward to surging pre-holiday demand, Krems says he and the United Cargo Sales team have been listening closely to its customers and “from what they tell us we can expect an upswing in volumes toward the end of the year.”

But as always, there is caveat. “However, knowing how we used to define the term in air cargo in years past, I don’t dare say we’re expecting a traditional ‘peak’, he says citing the plethora of unpredictable factors that may influence whether the increased volumes will actually translate into a positive impact on yields. Nonthe- less, it can surely be counted as good news for the industry which has seen that particular golden goose fly south more times than north in the past handful of years.

But longer-term prosperity will clearly rest on, as Krems pointed out, a reliable and efficient base product augmented by added-value products – including TempControl, EXP, QuickPak and UASecure – as the way forward.

As Krems points out this is the best way to increase yields and margins and importantly, becoming less vulnerable to external factors and reducing the impact of negative business and economic cycles.

Nothing particularly new to this, it is after all a strategy employed by all the top-end carriers around the world, but the devil is in the details as they say – and in this case the devil is delivering as promised.

Before his recent retirement as global head of cargo at the International Air Transport Association (IATA), Des Vertannes touched on this very aspect when he threw the gauntlet down for the air cargo industry as a ‘do or die’ type ultimatum – remove 24 hours from the end-to-end cargo delivery time, or continue to suffer the pain of modal shift.

Krems, who noted Des’ great dedication and contribution to the industry both professionally and personally, expressed the sentiment of the industry in saying “he will be greatly missed,” also acknowledged the harsh reality of Des’ argument.

“Des’ remarks told the air cargo industry some uncomfortable truths and he spoke accurately,” said Krems. “His call for more efficient processes, higher quality and faster delivery times applies to all carriers who use the traditional forwarder-carrier-forwarder shipping model – including United.”

He went on to cite familiar figures that state the fact 20 years ago the average international freight shipment took 7.2 days from the shipper’s door to the consignee’s door. Today these shipments take 6.8 days.

“Clearly, this is not sufficient to improve our value proposition and meet the challenge of modal shift. This is one of the reasons I feel strongly about the need for United Cargo and all industry stakeholders, to commit to progress on e-freight initiatives. The more we take paper out of the process, the better our chance to reduce end-to-end transit times.

“Since we can’t expect planes to fly any faster, our industry needs to develop new and innovative ways to streamline the exchange of shipments and data. United will continue our longstanding participation in Cargo 2000 and support this group’s efforts at cooperative progress.”

While e-freight has had a tough slog, industry progress is being made, led by a handful of key cargo airlines that have earmarked it as a top priority. United too has been a long-time proponent of “less paper” as a necessary step to true paperless air freight, says Krems. But until the deployment of the carrier’s UC360° system, it didn’t have the technology necessary to support this process. “With our new system, and with IATA’s multilateral multilateral electronic airway bill agreement, we are moving forward as a full supporter of the e-AWB.”

United Cargo’s e-AWB rollout strategy began with pilot tests of shipment booking, tender/acceptance and movement along with the messaging to record these milestones. The pilot initially focused on its hub locations and key customers adept at the required messaging and processes. United has now moved into the next phase of its strategy: Expanding the number of active e-AWB customers and total e-AWB shipments.

“Our e-AWB penetration is increasing every month and we are on track for and committed to IATA’s goal and timeline of 22 per cent penetration on e-AWB eligible international lanes by the end of 2014,” Krems noted.

Recent developments

In terms of recent developments TempControl, the carrier’s temperature sensitive product has been a focal point of United Cargo’s product development in recent years and during some of air cargo’s most economically challenging years, this was the only segment of the industry experiencing growth. “Along with developing product and route-specific standard operating procedures (SOPs), we invest in a great deal of groundwork and training before we ‘certify’ a station to handle this product. The recent additions of Delhi and Mumbai increased the number of TempControl-certified stations to 49, with more planned to come on line this year.”

A key enhancement to this service is the new ‘Control Tower’ for the planning and management of TempControl. The Tower approach comprises a team of specialists who provide customers a single point of contact through all phases of the shipment lifecycle – from pre-booking to post-recovery. The most important benefit is that the processes, data and communication involved in these complex moves are managed by one focused team. This increases the customer’s knowledge and control of the shipment at every milestone, according to Krems.

In the early years of TempControl, the commodities were almost exclusively pharma and life sciences, he notes. But the types and varieties of shipments are increasingly expanding with the carrier recently moving orange pulp, meat for the US troops, chocolate and shipments for NASA and Sony, among many others. “Since TempControl is such a key element in our business, we will roll out a number of very exciting enhancements to our TempControl service in the fourth quarter of 2014 – including new certified cities, new services, and new types of containers,” added Krems.

Another key development was the start of services between the carrier’s San Francisco hub (SFO) and Chengdu Shuangliu International Airport in Chengdu, China (CTU) with a three times weekly B787 service. The service began in June and marked the first service by a US airline in Chengdu and the first service by a US airline in mainland China beyond Beijing and Shanghai.

“We’ve been pleasantly surprised by the volume of business on our SFO-Chengdu route,” Krems said. Since Chengdu is one of China’s fastest-developing cities economically, we expected solid Chinaorigin business on this route. What is noteworthy is that our volumes from SFO into Chengdu have also been strong.”

One facet of the China market is the fairly recent expansion of the Chinese carriers’ international networks, in particular to the US and Europe. “Though Chinese carriers are increasing their capacity between the US and China much faster than their US counterparts, United has the largest US-China network and remains committed to retaining this leadership position,” Krems said.

United now operates direct flights from the US to Beijing, Shanghai
, Taipei, Hong Kong and Chengdu and is committed to continue to explore adding capacity and new cities to its China service. “While the growth of Chinese carriers is altering the landscape, we are confident that United Cargo’s long experience and our superior network of connections to the rest of the world will keep us a leader in the China air cargo market,” he said.

This of course brings up an important question. With no maindeck capacity to leverage, just how much say does the cargo division have in the development of new routes and fleet planning? Krems notes that while the passenger business potential is the primary driver of United’s network decisions, revenue from the carriage of cargo is a key contributor to the airline’s bottom line.

In fact, like many airlines, on some international routes, cargo’s contribution is the deciding factor as to whether the route is profitable for United. “So Cargo has a seat at the table when routing and equipment decisions are made, and passenger seats and cargo capacity are integrated into one decision model,” Krems says.